A campaign to persuade investors in 29 Waltus property syndicates to oppose a merger proposal, due to go to a vote next week, is stepping up.
A Whangarei accountant, Brian Moyle of Russell Turner, is the latest to oppose rolling the syndicates into one, with a value of $238 million, by early next month.
Investors have the chance to vote on the proposal by post or at the WestpacTrust Stadium in Wellington on Tuesday.
Mr Moyle said he had more than 50 clients, including himself, holding Waltus investments of about $4 million.
"Quite naturally, I am very concerned to ensure that any proposed merger is going to deliver what it promises. Sadly to say, I am totally unconvinced that that is likely to be the case."
Investment advisers Money Managers and Forsyth Barr have also expressed disapproval. Forsyth Barr managing director Michael Sidey has written to investors in one of the 29 syndicates, Regalia Properties, urging them to reject the merger.
But financial services company Dorchester Pacific, which initially criticised the merger proposal, is now supporting it.
Mr Moyle, in a letter to Waltus dated yesterday, questioned the performance of Waltus' management and the terms of reference set for the independent report by Deloitte Corporate Finance on the merger proposal.
He also questioned other aspects of the proposal.
"Is it really fair and reasonable to pay higher rates of interest on some of the mandatory convertible notes, more particularly to those originating from the currently better-performing syndicates? Those particular investors will have no greater risks than any of the others, so why should they be double rewarded with extra shares and notes, plus higher rates of interest on their notes?"
He also complained about the tax implications of the merger.
"The Deloitte report states that all of the accumulated tax losses within the syndicates will be lost on the merger. According to the prospectus, those losses currently total approximately $18 million. That is a very large sum and the implications are much more severe on a relatively small number of syndicates, including Kimberley and West City Plaza.
"Unexpected future tax liabilities could be incurred if the merger went ahead," he said.
Mr Moyle believed it was not too late to alter the proposal, although the documents had been prepared and the process court-approved. Another investor, Stuart Broome of Auckland, e-mailed fellow Carmont syndicate shareholders, saying they should vote against the merger.
"I have major concerns at the likely substantial diminution of my original capital under the merger proposal," he said. "The new shares are likely to trade at a discount to asset value, as happens to most listed property shares at present."
Mr Broome, who had attended a Waltus roadshow on the merger in Auckland, said the increased annual return promised would be mythical if your capital was eaten away by a fall in the new company's share price.
The merged shares, being unlisted and containing a significant number of properties with vacancy problems, would be discounted severely, he said.
Waltus, set up in 1985 to own commercial, industrial and retail properties, has 44 syndicates and wants to group 29 of them into one.
Director Shane Hodge said the merger would reduce risks to regular income and investors would benefit from being part of a larger, more resilient group.
"The larger group enhances our ability to actively manage the portfolio and create cost efficiencies," he told the Business Herald on July 3.
"Because of its size, it will have better sustainability of income, growth prospects, liquidity and diversification of risk - all of which makes the group a more attractive proposition than the individual syndicates."
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